Telecom sector regulator Trai today suggested a 10 per cent higher base price for the next round of spectrum auction in the 1800 Mhz band (2G spectrum) in view of the increasing data usage by consumers.

Telecom regulatory Authority of India recommended a price of Rs 2,138 crore per Mhz for the 1800 Mhz band.

It also suggested a price of Rs 3,004 crore per Mhz for the premium 900 Mhz band, in which mobile signal covered about twice more area than 1800 Mhz band.

It however recommended, keeping in view changing market dynamics on account of the expiry of the licences of telecom service providers (TSPs) and continuity of services for customers, that more radiowaves should be made available before conducting the auction scheduled for February 2015.

The spectrum price of the 1800 Mhz has been suggested at Rs 2,138 crore per Mhz, which is lower compared to the February 2014 auction. Government had received bids valued at Rs 2,270.4 crore per Mhz in the 1800 Mhz band in that auction earlier this year.

It said that since spectrum auction should not be conducted for Maharashtra and West Bengal service areas due to non-availability of full spectrum, the price of radiowaves that will be put for auction will come down to Rs 2,138 crore per Mhz.

However, the price recommendation would still be higher by around 10 per cent while comparing the forthcoming auction of the radiowaves in the Licence Service Areas (LSAs) with the earlier one.

This higher pricing is based on the increasing mobile Internet penetration and higher average data usage compared to the earlier period.

In the 900 Mhz band, the price of Rs 3,004 crore per Mhz is only for 18 out of 22 service area as spectrum in this band is not available in Jammu and Kashmir, Delhi, Mumbai and Kolkata service areas.

The spectrum auction is to be conducted for radiowaves in 900 Mhz held by existing telecom operators -- Airtel, Vodafone, Idea Cellular and Reliance Communications through their licences that are expiring in 2015-16.

In the 900 Mhz band, about 184 Mhz of spectrum is likely to be auctioned. In 1800 Mhz, government has proposed to auction 104 Mhz of spectrum which included spectrum held by licences that are expiring in 2015-16 and unsold airwaves in February auction.

However, government wants to keep 8.2 Mhz of spectrum as Defence band which leaves only 104 Mhz spectrum available for auction.

"The Authority recommends that the average expected valuation of 1800 MHz spectrum should be the higher of the two figures ? average expected valuation based on simple mean or the price realised in February 2014 auction in each LSA," Trai said.

For 900 Mhz, Trai decided that "the value of 900 MHz spectrum in each LSA should be the lower of the two figures - average valuation of 900 MHz or twice the value of 1800 MHz spectrum".

In a bid to increase the pace of investments in telecom in the North Eastern states, Trai recommended that the reserve price for North East LSA may be fixed at a discount of 50 per cent on the recommended reserve price.

Speaking to reporters, Trai Chairman Rahul Khullar said: "This is not a normal auction. Considering the available airwaves, the prices can go through the roof like the situation in May 2010."

He said the upcoming auction is critical for TSPs whose licences are will expire in 2015-16. In 900 MHz band, only the spectrum held by them is available for the auction.

These licensees will have to win back this spectrum to ensure business continuity or else their investment could be impacted, he added.

Trai in its recommendations said in a situation of short supply, market prices will rise, which can lead to frenzied bidding if more players enter the fray.

A similar escalation of prices was witnessed in the May 2010 auction when 3G spectrum was auctioned. The short supply of 3G spectrum led to a massive increase over the reserve price, it added.

Khullar said the other problem is that incumbent TSPs would be willing to pay huge sums to retain their spectrum so as to protect investments and ensure continuity of business.

"And, all industrial rivals know this, which is why even a non-serious bidder is potentially in a position to push up the final auction price," he added.

Such a situation will lead to either the operator wins back the 900 MHz spectrum but at a very high price thereby seriously limiting its ability to invest or the incumbent looses the spectrum, which will lead to discontinuation of service and huge loss in terms investment made in that LSA.

"Once services are discontinued and a new entrant comes into the LSA, they will need time to roll-out services. This will obviously pose problems for consumers.

"Moreover, if existing consumers port out under Mobile Number Portability (MNP) to another TSP in the same LSA, then, in effect, the auction would have led to a consolidation of market power (dominance) of that TSP. (Leave aside the fact that it effectively deprives consumers of choice of service provider)," Trai said.

The authority recommended that there is an obvious and compelling need to make available additional spectrum for the conduct of a fair and equitable auction.

Apart from 900 and 1800 MHz bands, new technologies can also be deployed in other bands. For instance, there is deployment of LTE in the 700 MHz bands and 3G in 2100 MHz band in a number of countries.

"Trai has emphasised that there is a need to make available additional spectrum before conducting the auction," Khullar said.

The upcoming auction should be scheduled after the issues related to supply constraints are resolved. Auctions in the 800 Mhz, 900 Mhz, 1800 Mhz and 2100 Mhz band should also be conducted simultaneously, he added.